Easter Term
[2018] UKSC 24
On appeal from: [2016] EWCA Civ 553
Judgment
Rock Advertising Limited (Respondent) v
MWB Business Exchange Centres Limited
(Appellant)
before
Lady Hale,
President
Lord
Wilson
Lord
Sumption
Lord
Lloyd-Jones
Lord
Briggs
Judgement given on
16 May 2018
Heard on 1 February 2018
Appellant
Clifford Darton
Sally Anne Blackmore
(Instructed by Edward
Harte LLP)
Respondent
Michael Paget
Zoë Whittington
(Instructed by DH Law
Ltd)
Lord Sumption: (with whom Lady Hale, Lord
Wilson and Lord Lloyd-Jones agree)
1. Modern litigation rarely raises truly fundamental issues in the law of
contract. This appeal is exceptional. It raises two of them. The first is whether a
contractual term prescribing that an agreement may not be amended save in
writing signed on behalf of the parties (commonly called a “No Oral Modification”
clause) is legally effective. The second is whether an agreement whose sole
effect is to vary a contract to pay money by substituting an obligation to pay less
money or the same money later, is supported by consideration.
2. MWB Business Exchange Centres Ltd operates serviced offices in central
London. On 12 August 2011, Rock Advertising Ltd entered into a contractual
licence with MWB to occupy office space at Marble Arch Tower in Bryanston
Street, London W1, for a fixed term of 12 months commencing on 1 November
2011. The licence fee was £3,500 per month for the first three months and
£4,333.34 per month for the rest of the term. Clause 7.6 of the agreement
provided:
“This Licence sets out all of the terms as agreed between
MWB and Licensee. No other representations or terms shall
apply or form part of this Licence. All variations to this
Licence must be agreed, set out in writing and signed on
behalf of both parties before they take effect.”
3. On 27 February 2012, Rock Advertising had accumulated arrears of
licence fees amounting to more than £12,000. Mr Idehen, the company’s sole
director, proposed a revised schedule of payments to Natasha Evans, a credit
controller employed by MWB. The effect of the revised schedule was to defer part
of the February and March payments, and to spread the accumulated arrears
over the remainder of the licence term. Account being taken of the implicit
interest cost of the deferral, Rock’s covenant to pay would be worth slightly less
to MWB under Mr Idehen’s proposal. There was then a discussion between them
on the telephone, in the course of which Mr Idehen contended that Ms Evans had
agreed to vary the licence agreement in accordance with the revised schedule.
Ms Evans denied this. She proceeded to treat the revised schedule as a proposal
in a continuing negotiation, and took it to her boss. He rejected it. On 30 March
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2012, MWB locked Rock Advertising out of the premises on account of its failure
to pay the arrears, and terminated the licence with effect from 4 May 2012. They
then sued for the arrears. Rock Advertising counterclaimed damages for wrongful
exclusion from the premises. The fate of the counterclaim, and therefore of the
claim, turned on whether the variation agreement was effective in law.
4. The case came before Judge Moloney QC, in the Central London County
Court, who decided it in favour of MWB. He found that an oral agreement had
been made with Ms Evans to vary the licence in accordance with the revised
schedule, and that she had ostensible authority to make such an agreement. He
held (i) that the variation agreement was supported by consideration, because it
brought practical advantages to MWB, in that the prospect of being paid
eventually was enhanced; but (ii) that the variation was ineffective because it was
not recorded in writing signed on behalf of both parties, as required by clause 7.6.
MWB were therefore entitled to claim the arrears without regard to it.
5. The Court of Appeal (Arden, Kitchin and McCombe LJJ) overturned him:
[2017] QB 604. They agreed that the variation was supported by consideration,
but they considered that the oral agreement to revise the schedule of payments
also amounted to an agreement to dispense with clause 7.6. It followed that
MWB were bound by the variation and were not entitled to claim the arrears at
the time when they did.
6. It is convenient to start with the question on which the courts below
disagreed, namely the legal effect of clause 7.6.
7. At common law there are no formal requirements for the validity of a
simple contract. The only exception was the rule that a corporation could bind
itself only under seal, and what remained of that rule was abolished by the
Corporate Bodies Contracts Act 1960. The other exceptions are all statutory, and
none of them applies to the variation in issue here. The reasons which are almost
invariably given for treating No Oral Modification clauses as ineffective are (i) that
a variation of an existing contract is itself a contract; (ii) that precisely because
the common law imposes no requirements of form on the making of contracts,
the parties may agree informally to dispense with an existing clause which
imposes requirements of form; and (iii) they must be taken to have intended to do
this by the mere act of agreeing a variation informally when the principal
agreement required writing. All of these points were made by Cardozo J in a well-
known passage from his judgment in the New York Court of Appeals in Beatty v
Guggenheim Exploration Co (1919) 225 NY 380, 387-388:
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“Those who make a contract, may unmake it. The clause
which forbids a change, may be changed like any other. The
prohibition of oral waiver, may itself be waived. ‘Every such
agreement is ended by the new one which contradicts it’
(Westchester F Ins Co v Earle 33 Mich 143, 153). What is
excluded by one act, is restored by another. You may put it
out by the door; it is back through the window. Whenever two
men contract, no limitation self-imposed can destroy their
power to contract again ...”
general requirement of writing for contracts of sale above a specified value,
coupled with a conditional provision giving effect to No Oral Modification clauses:
see sections 2-201, 2-209. But before that there was long-standing authority in
support of the rule stated by Cardozo J in New York and other jurisdictions of the
United States. It has also been applied in Australia: Liebe v Molloy (1906) 4 CLR
347 (High Court); Commonwealth v Crothall Hospital Services (Aust) Ltd (1981)
54 FLR 439, 447 et seq; GEC Marconi Systems Pty Ltd v BHP Information
Technology Pty Ltd (2003) 128 FCR 1. And in Canada: Shelanu Inc v Print Three
Franchising Corpn (2003) 226 DLR (4th) 577, para 54 per Weiler JA, citing
Colautti Construction Ltd v City of Ottawa (1984) 9 DLR (4th) 265 (CA) per Cory
JA. A corresponding principle is applied in Germany: A Müller, Protecting the
Integrity of a Written Agreement (2013), 300-305.
9. The English cases are more recent, and more equivocal. In United Bank
Ltd v Asif (CA, unreported, 11 Feb 2000), Sedley LJ refused leave to appeal from
a summary judgment on the ground that it was “incontestably right” that in the
face of a No Oral Modification clause “no oral variation of the written terms could
have any legal effect.” The Court of Appeal at an inter partes hearing cited his
view and endorsed it. Two years later, in World Online Telecom Ltd v I-Way Ltd
[2002] EWCA Civ 413, Sedley LJ’s view had softened. He held (para 12) that it
was a sufficient reason for refusing summary judgment that “the law on the topic
is not settled.” In Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2013]
EWHC 2118 (Comm), para 273 Gloster LJ declined to decide the point but
“incline[d] to the view” that such clauses were ineffective. The same view was
expressed, more firmly, but obiter, by Beatson LJ in Globe Motors Inc v TRW
Lucas Varity Electric Steering Ltd [2016] 1 CLC 712, paras 101-107, with the
support of Moore-Bick and Underhill LJJ. On the other side of this debate, there
is a substantial body of recent academic writing in support of a rule which would
give effect to No Oral Modification clauses according to their terms: see Jonathan
Morgan, “Contracting for self-denial: on enforcing ‘No oral modification’ clauses”
(2017) 76 CLJ 589; E McKendrick, “The legal effect of an Anti-oral Variation
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Clause”, (2017) 32 Journal of International Banking Law and Regulation, 439;
Janet O’Sullivan, “Unconsidered Modifications” (2017) 133 LQR 191.
10. In my opinion the law should and does give effect to a contractual
provision requiring specified formalities to be observed for a variation.
11. The starting point is that the effect of the rule applied by the Court of
Appeal in the present case is to override the parties’ intentions. They cannot
validly bind themselves as to the manner in which future changes in their legal
relations are to be achieved, however clearly they express their intention to do
so. In the Court of Appeal, Kitchin LJ observed that the most powerful
consideration in favour of this view is “party autonomy”: para 34. I think that this is
a fallacy. Party autonomy operates up to the point when the contract is made, but
thereafter only to the extent that the contract allows. Nearly all contracts bind the
parties to some course of action, and to that extent restrict their autonomy. The
real offence against party autonomy is the suggestion that they cannot bind
themselves as to the form of any variation, even if that is what they have agreed.
There are many cases in which a particular form of agreement is prescribed by
statute: contracts for the sale of land, certain regulated consumer contracts, and
so on. There is no principled reason why the parties should not adopt the same
principle by agreement.
12. The advantages of the common law’s flexibility about formal validity are
that it enables agreements to be made quickly, informally and without the
intervention of lawyers or legally drafted documents. Nevertheless, No Oral
Modification clauses like clause 7.6 are very commonly included in written
agreements. This suggests that the common law’s flexibility has been found a
mixed blessing by businessmen and is not always welcome. There are at least
three reasons for including such clauses. The first is that it prevents attempts to
undermine written agreements by informal means, a possibility which is open to
abuse, for example in raising defences to summary judgment. Secondly, in
circumstances where oral discussions can easily give rise to misunderstandings
and crossed purposes, it avoids disputes not just about whether a variation was
intended but also about its exact terms. Thirdly, a measure of formality in
recording variations makes it easier for corporations to police internal rules
restricting the authority to agree them. These are all legitimate commercial
reasons for agreeing a clause like clause 7.6. I make these points because the
law of contract does not normally obstruct the legitimate intentions of
businessmen, except for overriding reasons of public policy. Yet there is no
mischief in No Oral Modification clauses, nor do they frustrate or contravene any
policy of the law.
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13. The reasons advanced in the case law for disregarding them are entirely
conceptual. The argument is that it is conceptually impossible for the parties to
agree not to vary their contract by word of mouth because any such agreement
would automatically be destroyed upon their doing so. The difficulty about this is
that if it is conceptually impossible, then it cannot be done, short of an overriding
rule of law (presumably statutory) requiring writing as a condition of formal
validity. Yet it is plain that it can. There are legal systems which have squared
this particular circle. They impose no formal requirements for the validity of a
commercial contract, and yet give effect to No Oral Modification clauses. The
Vienna Convention on Contracts for the International Sale of Goods (1980) has
been ratified by 89 states, not including the United Kingdom. It provides by article
11 that a contract of sale “need not be concluded in or evidenced by writing and
is not subject to any other requirement as to form.” Nonetheless, article 29(2)
provides:
“A contract in writing which contains a provision requiring any
modification or termination by agreement to be in writing may
not be otherwise modified or terminated by agreement.
However, a party may be precluded by his conduct from
asserting such a provision to the extent that the other party
has relied on that conduct.”
Similarly, article 1.2 of the UNIDROIT Principles of International Commercial
Contracts, 4th ed (2016), provides that “nothing in these Principles requires a
contract, statement or any other act to be made in or evidenced by a particular
form.” Yet article 2.1.18 provides that
“A contract in writing which contains a clause requiring any
modification or termination by agreement to be in a particular
form may not be otherwise modified or terminated. However,
a party may be precluded by its conduct from asserting such
a clause to the extent that the other party has reasonably
acted in reliance on that conduct.”
These widely used codes suggest that there is no conceptual inconsistency
between a general rule allowing contracts to be made informally and a specific
rule that effect will be given to a contract requiring writing for a variation.
14. The same point may be made in a purely English context by reference to
the treatment of entire agreement clauses, which give rise to very similar issues.
Page 6
Entire agreement clauses generally provide that they “set out the entire
agreement between the parties and supersede all proposals and prior
agreements, arrangements and understandings between the parties.” An
abbreviated form of the clause is contained in the first two sentences of clause
7.6 of the agreement in issue in this case. Such clauses are commonly coupled
(as they are here) with No Oral Modification clauses addressing the position after
the contract is made. Both are intended to achieve contractual certainty about the
terms agreed, in the case of entire agreement clauses by nullifying prior collateral
agreements relating to the same subject-matter. As Lightman J put it in
Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611, para 7:
“The purpose of an entire agreement clause is to preclude a
party to a written agreement from threshing through the
undergrowth and finding in the course of negotiations some
(chance) remark or statement (often long forgotten or difficult
to recall or explain) on which to found a claim such as the
present to the existence of a collateral warranty. The entire
agreement clause obviates the occasion for any such search
and the peril to the contracting parties posed by the need
which may arise in its absence to conduct such a search. For
such a clause constitutes a binding agreement between the
parties that the full contractual terms are to be found in the
document containing the clause and not elsewhere, and that
accordingly any promises or assurances made in the course
of the negotiations (which in the absence of such a clause
might have effect as a collateral warranty) shall have no
contractual force, save insofar as they are reflected and
given effect in that document. The operation of the clause is
not to render evidence of the collateral warranty inadmissible
in evidence as is suggested in Chitty on Contract 28th ed Vol
1 para 12-102: it is to denude what would otherwise
constitute a collateral warranty of legal effect.”
But what if the parties make a collateral agreement anyway, and it would
otherwise have bound them? In Brikom Investments Ltd v Carr [1979] QB 467,
480, Lord Denning MR brushed aside an entire agreement clause, observing that
“the cases are legion in which such a clause is of no effect in the face of an
express promise or representation on which the other side has relied.” In fact
there were at that time no cases in which the courts had declined to give effect to
such clauses, and the one case which Lord Denning cited (J Evans & Son
(Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078) was really a case of
estoppel and concerned a different sort of clause altogether. In Ryanair Ltd v SR
Page 7
Technics Ireland Ltd [2007] EWHC 3089 (QB), at paras 137-143, Gray J treated
Lord Denning’s dictum as a general statement of the law. But in my view it cannot
be supported save possibly in relation to estoppel. The true position is that if the
collateral agreement is capable of operating as an independent agreement, and
is supported by its own consideration, then most standard forms of entire
agreement clause will not prevent its enforcement: see Business Environment
Bow Lane Ltd v Deanwater Estates Ltd [2007] L & TR 26 (CA), at para 43, and
North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 at paras 57 (Briggs
J), 82-83 (Longmore LJ). But if the clause is relied upon as modifying what would
otherwise be the effect of the agreement which contains it, the courts will apply it
according to its terms and decline to give effect to the collateral agreement. As
Longmore LJ observed in the North Eastern Properties Ltd case, at para 82:
“if the parties agree that the written contract is to be the
entire contract, it is no business of the courts to tell them that
they do not mean what they have said.”
Thus in McGrath v Shah (1989) 57 P & CR 452, 459, John Chadwick QC (sitting
as a Deputy Judge of the Chancery Division) applied an entire agreement clause
in a contract for the sale of land, where the clause served the important function
of ensuring that the contract was not avoided under section 2 of the Law of
Property (Miscellaneous Provisions) Act 1989 on the ground that the terms were
not all contained on one document. Outside the domain, in some ways rather
special, of contracts for the sale of land, in Deepak Fertilisers and Petrochemical
Corpn v ICI Chemicals & Polymers Ltd [1998] 2 Lloyd’s Rep 139, 168 (Rix J) and
(1999) 1 Lloyd’s Rep 387, para 34 (CA), both Rix J and the Court of Appeal
treated the question as one of construction and gave effect to the clause
according to its terms. Lightman J did the same in the Inntrepreneur case. Since
then, entire agreement clauses have been routinely applied: see Matchbet Ltd v
Openbet Retail Ltd [2013] EWHC 3067 (Ch), para 112; Mileform Ltd v Interserve
Security Ltd [2013] EWHC 3386 (QB), paras 93-101; Moran Yacht & Ship Inc v
Pisarev [2016] 1 Lloyd’s Rep 625 (CA), para 18; First Tower Trustees Ltd v CDS
(Superstores International) Ltd [2017] 4 WLR 73, paras 17, 26; Adibe v National
Westminster Bank Plc [2017] EWHC 1655 (Ch), para 29; Triple Point Technology
Inc v PTT Public Co Ltd [2017] EWHC 2178 (TCC), para 68; ZCCM Investments
Holdings Plc v Konkola Copper Mines Plc [2017] EWHC 3288 (Comm), para 21.
15. If, as I conclude, there is no conceptual inconsistency between a general
rule allowing contracts to be made informally and a specific rule that effect will be
given to a contract requiring writing for a variation, then what of the theory that
parties who agree an oral variation in spite of a No Oral Modification clause must
Page 8
have intended to dispense with the clause? This does not seem to me to follow.
What the parties to such a clause have agreed is not that oral variations are
forbidden, but that they will be invalid. The mere fact of agreeing to an oral
variation is not therefore a contravention of the clause. It is simply the situation to
which the clause applies. It is not difficult to record a variation in writing, except
perhaps in cases where the variation is so complex that no sensible businessman
would do anything else. The natural inference from the parties’ failure to observe
the formal requirements of a No Oral Modification clause is not that they intended
to dispense with it but that they overlooked it. If, on the other hand, they had it in
mind, then they were courting invalidity with their eyes open.
16. The enforcement of No Oral Modification clauses carries with it the risk
that a party may act on the contract as varied, for example by performing it, and
then find itself unable to enforce it. It will be recalled that both the Vienna
Convention and the UNIDROIT model code qualify the principle that effect is
given to No Oral Modification clauses, by stating that a party may be precluded
by his conduct from relying on such a provision to the extent that the other party
has relied (or reasonably relied) on that conduct. In some legal systems this
result would follow from the concepts of contractual good faith or abuse of rights.
In England, the safeguard against injustice lies in the various doctrines of
estoppel. This is not the place to explore the circumstances in which a person
can be estopped from relying on a contractual provision laying down conditions
for the formal validity of a variation. The courts below rightly held that the minimal
steps taken by Rock Advertising were not enough to support any estoppel
defences. I would merely point out that the scope of estoppel cannot be so broad
as to destroy the whole advantage of certainty for which the parties stipulated
when they agreed upon terms including the No Oral Modification clause. At the
very least, (i) there would have to be some words or conduct unequivocally
representing that the variation was valid notwithstanding its informality; and (ii)
something more would be required for this purpose than the informal promise
itself: see Actionstrength Ltd v International Glass Engineering In Gl En SpA
[2003] 2 AC 541, paras 9 (Lord Bingham), 51 (Lord Walker).
17. I conclude that the oral variation which Judge Moloney found to have been
agreed in the present case was invalid for the reason that he gave, namely want
of the writing and signatures prescribed by clause 7.6 of the licence agreement.
18. That makes it unnecessary to deal with consideration. It is also, I think,
undesirable to do so. The issue is a difficult one. The only consideration which
MWB can be said to have been given for accepting a less advantageous
schedule of payments was (i) the prospect that the payments were more likely to
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be made if they were loaded onto the back end of the contract term, and (ii) the
fact that MWB would be less likely to have the premises left vacant on its hands
while it sought a new licensee. These were both expectations of practical value,
but neither was a contractual entitlement. In Williams v Roffey Bros & Nicholls
(Contractors) Ltd [1991] 1 QB 1, the Court of Appeal held that an expectation of
commercial advantage was good consideration. The problem about this was that
practical expectation of benefit was the very thing which the House of Lords held
not to be adequate consideration in Foakes v Beer (1884) 9 App Cas 605: see in
particular p 622 per Lord Blackburn. There are arguable points of distinction,
although the arguments are somewhat forced. A differently constituted Court of
Appeal made these points in In re Selectmove Ltd [1995] 1 WLR 474, and
declined to follow Williams v Roffey. The reality is that any decision on this point
is likely to involve a re-examination of the decision in Foakes v Beer. It is
probably ripe for re-examination. But if it is to be overruled or its effect
substantially modified, it should be before an enlarged panel of the court and in a
case where the decision would be more than obiter dictum.
19. I would allow the present appeal and restore the order of Judge Moloney.
Lord Briggs:
20. I agree with Lord Sumption that this appeal should be allowed, on the
ground that the “No Oral Modification” (“NOM”) provision in clause 7.6 of the
Licence Agreement deprived the alleged oral agreement asserted by Rock
Advertising of any binding force as a contractual variation. I also agree that, in
those circumstances, it would not be desirable for this court to address the issue
of consideration, for the reasons which he gives. I have however reached my
conclusion about the NOM issue on different and rather narrower grounds than
his, although I do not think that our differences in reasoning would have any
significant consequences for the application of the common law, save perhaps on
very unlikely facts.
21. The starting point, as Lord Sumption says, is that NOM clauses are a
frequently encountered, sensible provision in business agreements, which are
recognised as effective in many legal codes around the world, such that the
common law should give effect to them if it can. I need say nothing more than he
does about their advantages.
22. I also agree that the obstacle which has thus far stood in the way of their
recognition in this and many other common law jurisdictions is mainly conceptual.
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Two (or more) persons may of course bind themselves contractually as to their
future conduct, and that will prevail for as long as one of them desires that this
regime should remain in place. But if they both (or all) agree, in some form
recognised by the law, that they should no longer be bound, why should their
previous agreement to the contrary stand in their way? While statute may, in the
public interest, require certain formalities for the making of certain types of
contract, the common law leaves the parties to choose their own, so long as the
essential elements of offer, acceptance and consideration are observed. These
matters are as applicable to the variation of an existing contract as they are to the
making of a contract in the first place.
23. This basic concept, that parties to a contract have complete freedom by
further agreement to “unbind” themselves as to their future conduct, is in principle
applicable not merely to their substantive mutual obligations, but also to any
procedural restraints upon which they may agree, including restraints as to how
they may vary their existing contractual relationship. It is therefore fully applicable
to the constraint upon their future conduct imposed by a NOM clause. No-one
doubts that parties to a contract containing a NOM clause are at liberty thereafter
to remove it from their bargain, temporarily or permanently, by a compliant written
variation, following which it will not inhibit them from agreeing further variations
purely orally.
24. The critical questions for present purposes are, first: whether the parties
can agree to remove a NOM clause from their bargain orally and, second:
whether, if so, such an agreement will be implied where they agree orally upon a
variation of the substance of their relationship (which the NOM clause would
require to be in writing) without saying anything at all about the NOM clause.
Must they be taken so to have agreed by the very fact that they have made the
substantive variation orally? Lord Sumption would answer the first question in the
negative, so that, for him, the second question would not arise. For the reasons
which follow, I would answer the first question in the affirmative, but not
(generally at least) the second. The outcome on the present facts is the same. In
this case the alleged oral agreement to vary the Licence said nothing whatsoever
about the NOM clause (of which both Mr Idehen and Ms Evans were probably
entirely unaware), and I would not treat it as having been done away with by
necessary implication. The result is that their alleged agreement as to the terms
of a variation had no immediately binding force, any more than an agreement
made subject to contract. This will probably be the outcome on any comparable
or likely fact-set since, leaving aside emergencies, once the parties focus on the
obstacle presented by the NOM clause, they would almost certainly remove it by
a simple written variation, or indeed make the whole of the substantive variation
itself in writing.
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25. I must start by explaining why I have not been persuaded by Lord
Sumption’s analysis that I can surmount the conceptual problem that has thus far
proved insuperable in most common law jurisdictions, as enunciated in the
celebrated dictum of Cardozo J in Beatty v Guggenheim which Lord Sumption
cites at para 7. His starting point is that to refuse to recognise the effect of a NOM
clause is to override the parties’ intentions, so as to make it impossible for them
validly to bind themselves as to the manner in which a change in their legal
relations is to be achieved in the future. I respectfully disagree. For as long as
either (or any) party to a contract containing a NOM clause wishes the NOM
clause to remain in force, that party may so insist, and nothing less than a written
variation of the substance will suffice to vary the rest of the contract (leaving
aside estoppel). The NOM clause will remain in force until they both (or all) agree
to do away with it. In particular it will deprive any oral terms for a variation of the
substance of their obligations of any immediately binding force, unless and until
they are reduced to writing, or the NOM clause is itself removed or suspended by
agreement. That fully reflects the autonomy of parties to bind themselves as to
their future conduct, while preserving their autonomy to agree to release
themselves from that inhibition.
26. There are of course statutes which require particular formalities for the
making of certain types of contract, but they are binding because they are
imposed by the legislature as part of the law of the land, and may only be
released by the legislature. Of course private parties may agree upon a scheme
of local law by which they (and even their successors in title) are in future to be
bound, as in the case of certain types of covenants affecting the use of land, but
that scheme of local law may be varied or abandoned by the same parties, by
agreement. What is to my mind conceptually impossible is for the parties to a
contract to impose upon themselves such a scheme, but not to be free, by
unanimous further agreement, to vary or abandon it by any method, whether
writing, spoken words or conduct, permitted by the general law.
27. I recognise that there are a number of widely used codes of law, by which
parties may be, or agree to be, bound, that do recognise NOM clauses as
effective to deny any legal effect from subsequent oral variations of the contract
incorporating such a code. If they form part of a national law, then they bind
parties to a contract governed by that law in the same way as would an English
statute. If they are simply part of a code chosen by the parties to govern their
contractual relationship, they do not prevent the parties from expressly agreeing
to depart from those codal restrictions, either generally or for a specific purpose.
But such an agreed departure will not lightly be inferred, where the parties merely
conduct themselves in a non-compliant manner, for example by discussing and
even reaching a consensus about a variation of the substance of their obligations
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purely orally, without express reference to the NOM clause. The effect of
contracting in terms which incorporate such a code, where the code includes or
recognises the effect of a NOM clause, is at least at the conceptual level no more
or less effective than simply including a NOM clause in the contract.
28. Nor have I found the entire agreement clause a useful analogy. It may well
serve the same objective of promoting legal certainty as to what the agreement is
but, as Lord Sumption explains, these clauses do not purport to bind the parties
as to their future conduct. They leave the scope and the procedure for
subsequent variation entirely unaffected. They therefore give rise to no
conceptual difficulty of the type which affects a NOM clause.
29. By contrast I fully agree with Lord Sumption’s proposition that parties who
orally agree the terms of a variation of the substance of their contractual
relationship do not thereby (and without more) impliedly agree to dispense with
the NOM clause. There is to my mind a powerful analogy with the way in which
the law treats negotiations subject to contract. Where parties agree to negotiate
(or declare that they are negotiating) under the subject to contract umbrella and,
at the end of those negotiations, reach consensus ad idem supported by
consideration sufficient (but for the umbrella) to give rise to a contract, no binding
obligations thereby ensue unless or until they have made a formal written
contract, or expressly agreed to dispense with that umbrella. Its abandonment will
not be implied merely because they have reached full agreement, unless such an
implication was necessary. Cumming Bruce LJ provides a concise summary of
this principle in Cohen v Nessdale Ltd [1982] 2 All ER 97, 103-104 by reference
(via a citation from Sherbrooke v Dipple (1980) 41 P & CR 173) to embedded
dicta of Brightman J in Tevanon v Norman Brett (Builders) Ltd (1972) 223 EG
1945, 1947 in the following terms:
“Brightman J said that ‘parties could get rid of the
qualification of ‘subject to contract’ only if they both expressly
agreed that it should be expunged or if such an agreement
was to be necessarily implied. …’ ‘[W]hen parties started
their negotiations under the umbrella of the ‘subject to
contract’ formula, or some similar expression of intention, it
was really hopeless for one side or the other to say that a
contract came into existence because the parties became of
one mind notwithstanding that no formal contracts had been
exchanged. Where formal contracts were exchanged, it was
true that the parties were inevitably of one mind at the
moment before the exchange was made. But they were only
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of one mind on the footing that all the terms and conditions of
the sale and purchase had been settled between them, and
even then the original intention still remained intact that there
should be no formal contract in existence until the written
contracts had been exchanged.’”
Cumming-Bruce LJ then quoted Templeman LJ in Sherbrooke as saying:
“Brightman J thought parties could get rid of the qualification of ‘subject to
contract’ only if they both expressly agreed that it should be expunged or if such
an agreement was to be necessarily implied.”
30. Necessity is in this context a strict test. It will, perhaps unfortunately,
commonly be the case that the persons charged with the day to day performance
of a business contract will, with full authority to do so, agree some variation in the
manner in which it is to be performed, blissfully unaware that the governing
contract has, buried away in the small print of standard terms, a NOM clause
inserted by diligent lawyers anxious to minimise the risk of litigation about its
terms. That will be arid ground for an implied term that the NOM clause, of which
they were unaware, was agreed to be treated as done away with. Where
however the orally agreed variation called for immediately different performance
from that originally contracted for, before any written record of the variation could
be made and signed, then necessity may lead to the implication of an agreed
departure from the NOM clause, but the same facts would be equally likely to
give rise to an estoppel, even if not. But that is far from the facts of this case,
where there was no such urgency.
31. In my view this more cautious recognition of the effect of a NOM clause,
namely that it continues to bind until the parties have expressly (or by strictly
necessary implication) agreed to do away with it, would give the parties most of
the commercial benefits of certainty and the avoidance of abusive litigation about
alleged oral variation for which its proponents contend. It would certainly do so in
the present case. It would probably leave only those cases where the subject
matter of the variation was to be, and was, immediately implemented, where
estoppel and release of the NOM clause by necessary implication are likely to go
hand in hand. While it might in theory also leave open the case where it is alleged
that the parties did have the NOM clause in mind, and then agreed to do away
with it orally, that seems to me to be so unlikely a story that a judge would usually
have little difficulty in treating it as incredible (if denied), and therefore as
presenting no obstacle to summary judgment on the contract in its unvaried form.
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32. In proposing this perhaps cautious solution to the problem thrown up by
this case I am comforted by the perception that it represents an incremental
development of the common law which accords more closely with the conceptual
analysis adopted in most other common law jurisdictions, as Lord Sumption has
described. By contrast the more radical solution which he proposes would involve
a clean break with something approaching an international common law
consensus, unsupported by any societal or other considerations peculiar to
England and Wales. There may be cases where a pressing need to modernise
the common law justifies such a break, perhaps in the expectation that other
common law jurisdictions will in due course follow, but this case is not, in my
opinion, one of them.
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